How good are you at evaluating risk?

One of the most common questions my clients ask is; "How do I choose well?". They want to know how to evaluate the opportunities that are presented to them, and how to weigh their options. You and I make decisions every day, from whether or not we should drink another cup of coffee ("how many have I had? is that good for me?"), to whether or not we should accept that job offer.

In every decision, there are risks — some are real, and some are perceived risks. An interesting study was conducted recently by Baruch Fishchhoff, Professor of Social and Decision Science at Carnegie Melon University. He asked a panel of professionals from a wide range of sectors what the likelihood was of contracting the avian flu from another person in the next 3 years. The professionals estimated a 60% likelihood, while, when asked the same question, a group of medical experts guessed 10%.

Were you aware that not one person died of mad cow disease in North America last year, and yet 48,000 people died in car accidents? Were you more concerned about buying your meat and its possible health impacts, or driving to the grocery store? Some of us may have experienced some concern over where our meat was coming from, while we drank our coffee and simultaneously talked on the cell phone while switching lanes on the highway — all without a hint of worry!

This scenario underscores the puzzle of facts versus feelings. In my opinion, most of our decision making errors occur as a direct result of our feelings. Scientists call this the "probability neglect" – what we tend to dread is more closely related to what we feel is more likely to occur.

Feelings are wonderful; however, you need facts to back up the feelings and to really understand the reality of the situation. Without facts, you may be on the wrong track. Think of that interview you didn’t prepare for. What kind of impact did that have on your career? I am not saying you should ignore your feelings, just make sure you keep them in context. And yes, go ahead and have that cup of coffee — you’ve earned it!

This week’s 10 Minute WORKout: During your last interview, what other things should you have done to be more prepared? What kinds of questions should you have asked?